Intel Nears Foundry Inflection Point

With revenues flat, capex expenses near historic highs and no hot smartphone chips in 2014, Intel faces a pivot point in foundry.

SAN JOSE, Calif. — Intel's new chief executive Brian Krzanich is clearly on the hot seat. The world's largest chip maker told analysts yesterday 2014 will be another flat year for the company accustomed to outpacing chip industry growth, yet it is maintaining historically high capex spending, seeing the need for a new 450mm fab on the horizon.

The good news is Intel claims it will have an edge over the rest of the industry in lower cost with its 14nm process that's now ramping. The bad news is it doesn't appear to have any hot smartphone products to make in the process next year, and it's not clear to what extent it will let high volume competitors use its fabs.

Costs per transistor are expected to remain flat for foundry giant TSMC as it moves to its first FinFET process at about 14nm. Intel said it will have an edge in more dense wafers at the node which will be its second-generation with the vertical transistors.

That's potentially a huge benefit, but it's not clear how Intel will harvest it. The company is gaining some share in tablets, but is going nowhere in smartphones. Intel is not expected to have until 2015 the kind of integrated LTE applications processor rivals like Qualcomm are selling now.

Krzanich, named CEO in May, said Intel is stepping on the gas in foundry services. However, the signals he sent were not clear about the extent that might include direct rivals such as Qualcomm. It's not clear Intel could strike and deliver on profitable, high volume deals with competitors even if out of desperation it became willing to do them.

High volume foundry is a very different business model than the "copy exact" strategy Intel has had in place for decades. The signs from yesterday's meeting are Intel still very much wants the lion's share of 14nm chips it makes to be ones it designs.

Interestingly, Intel said it will make its next-generation integrated 3G smartphones chips at a foundry for faster time-to-market. It aims to build the follow-on LTE devices in its own 14nm fabs.

Wall Street analysts remained upbeat on the strength of Krzanich's aggressive stance.

"We believe Intel can return to growth in 2H14/15 as the PC market stabilizes and share gains emerge in tablets, phones, foundry etc.," said Ross Seymore of Deutsche Bank, though he shaved $2.2 billion of his estimates for Intel's 2014 revenues. "Even incremental success in these areas should yield above consensus rev/EPS and a rising share price," he added.

In order to be competitive your new core needs to leapfrog the previous generation cores of your competition by a good margin, especially when you already use the best process. 20nm TSMC is around the corner, and so are several more 64-bit ARM cores (besides Apple A7). That's what Silvermont will have to compete against next year, so let's see what your analysts say then.

ISA does certainly matter at lot despite claims to the contrary. However even if you just consider the ecosystem, it's hard to deny that x86 is at a distinct disadvantage there with virtually no presence in MCUs. Intel needs to try to compete in IoT of course (or again lose out like with mobiles), but the question is whether it is possible for them to compete using something like Quark. I refer to my leapfrog argument again, why would anyone switch to x86 if there is no compelling reason to do so?

Intel should let it go its Ego. It is too late and culturely not fit for Intel going to Mobile World with its x86 SoC. Once Intel gives up on that, Mobile will become money making business instead of money loosing business by offering foundry services to Qualcomm and Appple.

@resistion, agreed. Any SoC vendors, especially in the mobile world, would have to think long and hard before going to Intel for having their chips fabricated by them. They should be "scared," as you point out. The competitor angle should not be underestimated.

Rick, I'd say Quark is exactly the sort of thing that convinces me that Intel doesn't have a clue. Who wants an ancient and slow 486 to replace their current fast and efficient RISC MCUs? If this is something the new CEO pushed for, then I believe things won't improve at all - when does Intel get the message that x86 everywhere is just a crazy idea?

Atom is another example - why spend 5 years trying to shoehorn the same old and uncompetitive design into mobiles when you see all your competitors release new CPUs every 6 months or so? The disadvantage of the x86 ISA is such a millstone that even having the most advanced process cannot mitigate it. The new Silvermont can barely keep up with older 28nm ARM designs despite being made on the worlds most advanced 22nm process...

If they keep repeating the same mistakes then it won't even be their choice - to survive, all they could become is a foundry.

@ Rick Merritt. In general I find your opinions spot on. However not in this case. You have titled your article as " ... inflection point ". That is a term which has crept into common usage from Mathematics & then EE but perhaps not fully comprehended. Such points are characterized by very sudden & severe changes in gradient - not visible from 30,000 ft and require close monitoring. So what is needed "...inside" is someone at the helm who can call the shots based on hard personal knowledge where there is weakness / delay i,e. architecture and design and not lose focus, as you have rightly pointed out, by dabbling into lower margin Foundry services where the incumbent feels conmfortable in because of his Process background. A person with strength in Design would not have even considered that diversion seriously.

@Junko: Interesting parallel with Intel and the japanese giants it once fought.

I think things will have to get pretty painful for Intel before it gives up the high margin processor busienss for the lower margin foundry busienss. It doesn't even have the skills for the high product/process mix that busienss requires.

@Chipmonk and resistion: I think Intel has plenty of good processor and circuit designers, but they are still far behind Qualcomm in having mobile SoC blocks and exptertise--despite years of efforts.

Re the CEO (BK) I don'[t think it maters if the CEO is a process, design or sales guy as long as he undewrstands the 30K-foot issues in all three areas. I think BK's Quark move shows he understands those issues and as an insider he knows how to work the levers at Intel to get stuff to happen fast.

That said, the mobile train left the station a couple years ago and Intel is still running behind it waiving its hat and carrying its suitcase.